THE KEY QUESTION: How should the BRICS bank allocate its short-term (around 2 years) loanportfolio
to the 5 constituent countries?
DETAILS – The newly formed BRICS bank, now known as the New Development Bank, has recently
issued its first loan in April 2016 to Brazil, China, India, and South Africa in the renewables energy
space. As an ongoing engagement, the bank has reached out to our team of consultants to help decide
what portion of its loan portfolio it should allocate to each country. Since the bank’s loans are primarily in
the manufacturing, heavy industries, and renewables space, both parties agree that the industrial output
data published by the World Bank would be a good proxy to use. The loans will be allocated depending
on how much the nations need it. The lower the industrial output, the bigger the need to infrastructural
development. There is no dearth of demand for loans.
Forecasting Problem: Forecast 2 years industrial output for BRICS countries by quarter based on data
from Jan 2002 to Nov 2016
- Since BRICS use quarterly estimations of both financials and future planned investments, we
have decided to aggregate the data into quarterly figures to help the Bank
RECOMMENDATION: BRICS bank should allocate a major part of the short term loans equally
among Brazil and Russia because of 2 reasons:
- Brazil and Russia are the only 2 countries among all where industrial productions are forecasted
to fall in the next 2 years. This necessitates fresh investment to give a boost.
- Both the countries have an industrial production of around $ 10 bn warranting an almost equal
split
Also we would be better off by over-forecasting, because that way BRICS bank would truly be able to
identify where the loan requirements are the most. And accordingly would be able to disburse the loan to
most needy country.